Oil Companies Discounts Widen as Stocks Fall: Overnight

By Belinda Cao -
Apr 4, 2012

Chinese equities traded in the U.S.
slid for a second day, widening oil and coal producers’
discounts to Hong Kong to the most this year, a signal commodity
stocks may fall as trading resumes in local markets.

Stocks slumped after the Federal Reserve indicated it may
refrain from more monetary stimulus in the minutes of its latest
meeting, boosting global slowdown concerns. The Chinese economy
expanded 8.4 percent in the first quarter, down from 8.9 percent
in the prior three months, National Development and Reform
Commission Vice Chairman Zhang Xiaoqiang predicted. The nation’s
regulator more than doubled on April 3 the quotas for foreigners
to invest in local capital markets.

“Commodity and oil producers around the world have seen
slowing growth amid weakening demand in China,” said Michael A. Gayed, chief investment strategist in New York at Pension
Partners LLC, which advises on over $150 million in assets,
including Chinese shares through exchange-traded funds. “If you
have big moves in other worldwide indexes in between the Chinese
markets being closed, you tend to have a delayed response.”

China ETF Plunges

The Chinese planning agency’s 8.4 percent growth forecast
for the first three months of the year -- made 10 days before
official data are due -- compared with the 8.3 percent median
estimate of 28 economists surveyed by Bloomberg then.

The Hang Seng China Enterprises Index (HSCEI) of Chinese companies
traded in Hong Kong rose 1.9 percent to a two-week high of
10,859.49 on April 3. Chinese stocks markets open today after
Hong Kong closed for a holiday yesterday and mainland Chinese
bourses were shut for the first three trading days of this week.

American depositary receipts of PetroChina, the nation’s
largest oil producer, fell 1.3 percent to $140.51 in the U.S.
yesterday. The Beijing-based company’s ADRs traded 2.1 percent
below its Hong Kong stock, which climbed 1.6 percent to HK$11.14
on April 3, the equivalent of $1.44 per share. The discount on
the ADRs, each representing 100 common shares in the PetroChina,
was the largest since Dec. 8.

Sinopec Discount

PetroChina’s 2011 net income fell 5 percent to 133 billion
yuan ($21 billion) as losses from selling diesel and gasoline at
state-controlled prices countered gains in crude sales. That
compared with a 2 percent advance in profit reported by China
Petroleum, known as Sinopec, and a 29 percent jump for Cnooc
Ltd. (883)

Sinopec’s ADRs, each of which equals 100 common shares,
lost 1.4 percent to $107.71 in their second day of declines. The
company’s stock added 0.6 percent to HK$8.47 in Hong Kong on
April 3, or $1.09 per share. The ADRs, trading 1.3 percent lower
than the Hong Kong shares, were the largest discount since Dec.
19.

‘Domestic Story’

Investor concern over future growth momentum in China has
helped curb demand for resources this year, Alex Ashby, a
research analyst at Global X Funds, an exchange-traded fund
company which manages $1.3 billion including Chinese equities,
said yesterday by phone. “The picture of those Chinese energy
and commodity companies is driven by the domestic story.”

The China Securities Regulatory Commission increased quotas
for qualified foreign institutional investors to participate in
the mainland market to $80 billion from $30 billion, according
to a statement on its website April 3.

Premier Wen Jiabao is seeking to attract international
investment as economic growth wanes. The nation reduced their
economic growth target for this year to the lowest since 2004
last month. The government is scheduled to report gross domestic
product figures for the first quarter on April 13.

“It’s very exciting to have that sort of access because
the valuations are very different,” Michael Venuto, head of
investments at Global X Funds, said in an interview yesterday in
New York. “As a U.S. investor, it’s impossible not to be
invested in China.”

Stocks on the Shanghai Composite Index trade for 9.6 times
estimated earnings, compared with an average valuation of 23.8
times for equities in the Bloomberg measure for U.S.-traded
Chinese companies.